Tuesday, October 13, 2009

Singtel vs Starhub

With Starhub being part of my dividend basket, I feel that it is necessary to look into the recent hoo-ha about the pay-TV competition between these two firms.

Starhub lost the rights to broadcast EPL, ESPN, STAR Sports and STAR Cricket to Singtel, who outbid Starhub for them, and this explains the plunge of Starhub from $2.16 to $1.94, which rebounded to $2 today.

This raises the question... is an oligopoly the way to go for Pay-TV market in Singapore? Competition is usually good for consumers, as we learn from basic Economics 101. However, in this case, it seems that competition might just not be good for consumers because, also from Economics, Singapore is so small that this market might be a natural monopoly.

Ok, enough of boring economic stuff. Let's go into some basic Maths calculations.

Singtel 100k subscribers
Starhub 550k subscribers (250k subscribe to sports as claimed by Starhub)

Very Optimistic Assumptions only:
Assuming that Singtel used a total of $500 million to win all the rights (I think should be more than that), and assuming that Singtel snatched all 250k subscribers over... plus additional another 150k new subscribers, Singtel will have 500k subscribers.

$500 million for 500k subscribers over 3 years is about $1000 per subscriber per 3 years, which works out to around $27.78 per month for every subscriber just for the rights to broadcast.

Bear in mind that the above optimistic calculated value is excluding any possible costs on infrastructure, human resource, etc. The burning question in mind is, is all these worth the effort and money?

The Ultimate Winner is BPL and ESPN!

Both enjoy greater profits from the sale of exclusive rights to Singtel instead of Starhub. The higher cost incurred will eventually find it's way to customers here. It sounds like a gloomy lose-lose situation for Singtel, shareholders, and customers. Customers now have to switch from Starhub to Singtel (probably a cumbersome process) if they still want to watch their BPL on TV.

However, one cannot deny that Singtel is indeed cunning and brillant to launch a surprise attack at Starhub at this juncture of the economy. And it seems that they are determined to push aside Starhub by offering seemingly lower prices to entice and persuade more soccer fans over. A brillant strategic move I would say, but at the expense of Singapore :(

This raise another question... Would Singtel build on it's success here, and spend more funds to bid Discovery Channel away from Starhub? As a shareholder of Starhub, I hope not.

Starhub should be reflecting on what had transpired, and what could have been done, and what should be done at the moment to retain customers and maintain profit margins. I'm pretty sure that for every problem, there will be a way to solve it. Complacency doesn't help in anyway here.

What could happen next? Would there be government intervention? Well, who knows. It's not exactly very anti-competitive for Singtel's probably well thought out action.

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